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Karam Chand Thappar and Bros. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Ref. No. 78 of 1958
Judge
Reported inAIR1965Cal343,[1965]55ITR427(Cal)
ActsIncome Tax Act, 1922 - Sections 10(2) and 66
AppellantKaram Chand Thappar and Bros.
RespondentCommissioner of Income-tax
Appellant AdvocateS. Chowdhury and ;D. Pal, Advs.
Respondent AdvocateB.L. Pal and ;S. Mukharji, Advs.
Cases ReferredAllen v. Farquharson Brothers and Co.
Excerpt:
- .....10 (2) (vii) of the indian income tax act. the tribunal held that from 31st july 1947 when the plant and machinery of the dry ice factory was purchased by the assessee to 14th august 1947, when the communal riot broke out in lahore, there was no production of dry ice and the sale price of carbon dioxide gas amounted to rs. 4,383-10-0. the assessee failed to produce the relevant acceunt books and to prove that the quanttity of gas sold had been manufactured in the factory during the short period of 14 days from 31st july 1947 to 14th august 1947. according to the tribunal the assessee also failed to prove that there was production of gas during this very short period of 14 days and, as such, it came to the conclusion that the machinery in dispute was not used in the business during.....
Judgment:

K.C. Sen, J.

1. This is a reference under Section 66(1) of the Income-tax Act, 1922, hereinafter described as the 'Act'. The following question arising out of the order of the Tribunal is for decision by this Court:

'Whether on the facts and in the circumstances of the case a sum of Rs. 47,404 representing the value of the electrical machinery looted during the communal riots in Lahore in the relevant year of account was admissible as an allowance under Section 10(2)(vii) of the Indian Income-tax Act ?'

2. The assessee is Messrs. Karam Chand Thapar and Brothers Private Limited, Calcutta. The assessment year is 1948-1949 and the relevant accounting year ended on the 31st March, 1948. The assessee was the Managing Agent of the Dry Ice Gas find Refrigerators Limited, Lahore. The latter sold its machinery and plant to the assessee company on the 31st July, 1947. Before this date of transfer the assessee company had purchased some electrical machinery of the value of Rs. 47,404 for production of dry iee and carbon dioxide gas, It is stated in the statement of the case by the appellate tribunal that the assessee company started working the dry ice factory on and from the 1st August, 1947. Communal riots broke out in Lahore and on the 14th August, 1947 the assessee company's factory at Lahore was raided by a mob and there was loot and arson. The assessee claimed that the electric machinery worth Rs. 47,404 was lost by destruction and, therefore, a claim of deduction in respect of the value of the machinery (Rs. 47,404) under Section 10(2)(vii) of the Act was made.

3. The Income-tax Officer who completed the assessment did not allow the claim for loss treating it as one of capital nature and on appeal by the assessee the Appellate Assistant Commissioner confirmed the order passed by the Income tax Officer. Thereafter the assessee preferred an appeal before the Income-tax Appellate Tribunal. After the case was heard in part by the Tribunal, it remanded the case to the Income-tax Officer by its order, dated30th April 1958 to find out the facts bearing upon the claim of the assessee and in particular, (1) whether the assessee carried on the business in the year of account; (2) what the date of destruction was; (3) what was the written down value of the assets and (4) whether the amount of Rs. 47,404 could be written off under Section 10(2)(vii). The Income-tax Officer in due course made investigation and sent his findings to the Tribunal. Thereafter it reheard the case and by its order, dated 19th March, 1959 upheld the disallowance in respect of Rs. 47,404 claimed under Section 10 (2) (vii) of the Indian Income Tax Act. The Tribunal held that from 31st July 1947 when the plant and machinery of the Dry Ice factory was purchased by the assessee to 14th August 1947, when the communal riot broke out in Lahore, there was no production of dry ice and the sale price of carbon dioxide gas amounted to Rs. 4,383-10-0. The assessee failed to produce the relevant acceunt books and to prove that the quanttity of gas sold had been manufactured in the factory during the short period of 14 days from 31st July 1947 to 14th August 1947. According to the Tribunal the assessee also failed to prove that there was production of gas during this very short period of 14 days and, as such, it came to the conclusion that the machinery in dispute was not used in the business during the year of account

4. As regards the question whether the assessee was entitled to claim allowance of Rs. 47,404 under Section 10(2)(vii) the Tribunal found that as this machinery was not sold or discarded or demolished or destroyed within the meaning of this section the assessee was not entitled to any allowance.

5. Mr. Chaudhuri appearing for the assessee has urged two points for consideration. Firstly that the Tribunal was wrong in coining to the conclusion that as the assessee could not produce a statement showing the production of gas during the very short period of 14 days immediately after taking over the plant and machinery, there was no proof that the machinery was used in the business during the year of account. His second point is that the amount of Rs. 47,404 which was the price of the machinery purchased should be treated as a loss of business on account of destruction by looting and the Tribunal was wrong in treating this amount as a loss on capital account.

6. As regards the first point, the Tribunal has made a finding of fact to the effect that the aforesaid machinery was never used for business inasmuch as within the very short period from the 31st July 1947 and 14th August, 1947 there was no production of dry ice. Mr. Chaudhuri in this connection has referred us to the decision of the Supreme Court reported in Liquidators of Pursa, Ltd. v. Commr. of Income-tax, Bihar : [1954]25ITR265(SC) . It has been held inter alia that the words 'used for the purpose of business' in Section 10(2)(iv) of the Indian Income-tax Act, 1922, mean use for the purpose of enabling the owner to carry on business and earn profits in the business. In other words, the machinery or plant must be used for the purpose of that business which is actually carried on and the profits of which are assessable under Section 10(1). It was further held by their Lordships that in order to attract theoperation of Clauses (v), (vi) and (vii) of Section 10(2) the machinery or plant must be such as were used, in whatever sense that word is taken, at least for a part of the accounting year. If the machinery and plant have not at all been used at any time during the accounting year no allowance can be claimed under Clause (vii) in respect of them and the second proviso of that clause does not come into operation.

7. It appears from the order of the Tribunal that it also referred to this decision in order to find that the provisions of Section 10(2)(vii) would not be attracted in this particular case as there was no evidence of user, which is nothing but production of the Carbon Dioxide Gas within the aforesaid period.

8. Section 10(1) provides that the tax shall be payable by an assessee under the head 'profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or voeatien carried on by him. Sub-section (2) provides that such profits or gains shall be computed after making the following allowance.....(vii) In respect of any such building, machinery or plant which has been sold or discarded or demolished or destroyed the amount by which the written down value thereof exceeds the amount for which the building, machinery or plant, as the case may be, is actually sold or its scrap value.

9. In view of the Supreme Court decision stated above it appears to us clear that in order to be entitled to me allowance as provided for in Clause (vii) above the machinery or plant must be such as were used. Therefore, if the machinery in this particular case was found to have been used and if it comes strictly within the ambit of Clause (vii), allowance may be admissible for the purpose of assessment. In view of this position of law, Mr. Pal appearing for the respondent urges that the Tribunal has made a finding of fact that the machinery was not used and such a finding cannot be disturbed by this Court. He also contends with reference to the materials in this case that the particular machinery or plant in respect of which the allowance is claimed was not proved to have been used for the purpose of the business carried on by the assessee. Undoubtedly such a position as taken by Mr. Pal appears to be convincing and the finding of fact by the Tribunal that this machinery or plant was never used should ordinarily stand. But in this connection Mr. Chaudhuri has referred us to the statement of the case which, according to him, gives rise to the conclusion that this particular machinery for which the allowance has been claimed was used by the assesses. The relevant statement of the case runs as follows:

'The assessee was the managing agent of the Dry Ice Gas and Refrigerators Limited of Lahore. The said Dry Ice Gas and Refrigerators Limited sold its machinery and plant to the assessee company on 31st July, 1947. Prior to this date, the assessee company had purchased some machinery of the value of Rs. 47,404 for production of Dry Ice and Carbon Dioxide Gas. The assessee company started working the Dry Ice Factory on and from the 1st August, 1947. But afterwards, communal riots broke out in Lahore.'

From the above extract of the statement of the case it appears that the machinery purchased formedpart of the establishment for production of Dry Ice and Carbon Dioxide Gas and that the assessee company started working the same from the 1st August, 1947. The statement of the case appears to be a clear pointer to the fact that the machinery in dispute was really used for the purpose of the business. This statement contradicts the finding made by the Tribunal stated before that this machinery was never used for production of carbon dioxide gas. If that be so, the question for consideration is whether the respective cases of the parties should be pinned down to the statement of the case as stated above. In this connexion, an observation of the Supreme Court made in the case of Khetra Mohan Sannyasi Charan Sadhukhan v. Commr. of Excess Profits Tax, West Bengal, reported in : [1953]24ITR488(SC) , may profitably be quoted here. Their Lordships observed that the statement of case drawn up by the Appellate Tribunal is binding upon the assessee and he is not entitled to go behind the facts found by the Tribunal in the statement of the case. In this particular case it appears to us that the Tribunal in the statement of the case has in unequivocal terms found that the assessee company started working the Dry Ice Factory on and from the 1st August, 1947 and it follows therefrom that the particular machinery was also used for the sake of business. In view of the observation of the Supreme Court quoted above it appears to us that the assessee cannot go behind such a statement of the case and the Commissioner of Income-tax being a party to it, cannot also be allowed to resile from the same. Accordingly, we are of opinion that the first part of the argument of Mr. Chaudhuri should prevail and it must be found that the machinery worth Rs. 47,404 was used for the purpose of the business.

10. As regards the second point urged by Mr. Chaudhuri it is necessary in the first instance to look into the exact words of the question. Its purport is whether the sum of Rs. 47,404 which is the value of the electric machinery looted during the communal riots in Lahore in the relevant year of account was admissible as an allowance under Section 10(2)(vii) of the Indian Income-tax Act. In view of the question it is necessary to discuss the scope of Section 10(2)(vii) of the Act, which has been quoted in the foregoing paragraph. This clause grants an allowance in respect of building, machinery or plant which has been sold or discarded or demolished or destroyed. In respect of the property which is discarded or demolished or destroyed the allowance can be granted for that accounting year in which the property has been actually discarded or demolished or destroyed. It also appears that the allowance under this clause can be claimed not only in respect of property which is discarded but also in respect of property which is sold, In respect of property which is sold, the basis of the allowance is the excess of the written down value over the sale price, while in the case of property which is discarded or demolished or destroyed, the amount of the allowance is the excess of the written down value over the scrap value.

11. On a careful perusal of this clause and its provisos, it appears that the allowance is claimable in respect of machinery or plant, etc. not only when sold or discarded but also when demolished or destroyed--having become obsoleteor damaged by accident or by being in disrepair. Further it appears that the transaction of sale mentioned in the main clause and in the first two provisos refers to a voluntary sale inter partes. The expressions 'discarded' or 'demolished' or 'destroyed' carry with them both voluntary or involuntary acts of discarding, demolition or destruction. If we refer to the provisos (3) and (4) of Section 10(2)(vii) it appears that they apply to all eases where insurance moneys or salvage moneys are received in respect of any building, machinery or plant discarded, demolished or destroyed. These provisos refer to payment of insurance moneys, etc. in cases where the instances of discarding, demolition or destruction are of involuntary nature. Mr. Chaudhuri contends that the provisions of Section 10(2)(vii) of the Act will apply to the instant case inasmuch as the word 'destroyed' has been used in this section and if after destruction no money is obtained, the entire costs thereof ought to be considered as an allowance for the purpose of assessment. He gives an illustration to the effect that if a Library containing books worth Rs. 10,000 is destroyed by fire entirely and nothing is left for ascertaining the scrap value the entire written down value of the Library should be taken into consideration as an allowance, for the purpose of assessment. Mr. Pal on the other hand contends that inasmuch as the expressions 'sale price' and 'scrap value' have been used in this clause, it clearly exempts the cases whore the property is involuntarily destroyed, without leaving any scrap value. The statement of the case shows that the assessment year is 1948 to 1949 and the relevant accounting year ended on the 31st March, 1948. The assessee's case is that prior to 31st July, 1947, the assessee company had purchased the electrical machinery in dispute for the purpose of producing Dry Ice and Carbon Dioxide Gas. From this fact it may be said that the machinery was purchased in the accounting year and, therefore, the written down value should ordinarily be the price of the machinery, viz., Rs. 47,404. in Section 10(5) of the Act 'written down value' has been defined. It requires to be calculated and arrived at for each accounting year. This sub-section also contemplates that in the case of assets acquired in the accounting year, the actual costs will have to be taken, as the written down value, as no depreciation allowance is capable of calculation in cases like this. Accordingly the question arises in the instant case whether allowance shall be granted under the provision of Section 10(2)(vii) on the entire wriiten down value, which is nothing but the sale price. According to ordinary principles of accounting it seems that both the positive and the negative aspect of 'scrap value' may be taken into consideration and if the scrap value is nil as in the instant case, the benefit of Section 10(2)(vii) of the Act may be bestowed upon the assessee, provided, however, it has been found that the factum of looting of the lock, stock and barrel of the machinery comes within the express provisions of the main body of the clause, viz., whether the machinery was discarded, demolished or destroyed. No case has been made out as to discarding or demolition and, therefore, the case has to be considered in the light of the explicit expression as used in this clause, viz., 'destroyed' Undoubtedly, there has been a low of machinery onaccount of looting by the communal rioters and the question for consideration is whether this loss was incidental to Wade. There is a distinction between business expenditure and business loss. Finley, J. said in Allen v. Farquharson Brothers and Co., (1932) 17 Tax Cas 59, that

'expenditure or disbursement means something or other which the trader pays out; I think some sort of volition is indicated. He chooses to pay out some disbursement; it is an expense; it is something which comes out of his pocket. A loss is something different. That is not a thing which, so to speak, conies upon him ab extra.' (Vide Kanga's Income-tax Act, Third Edition, page 465). In terms of this decision it appears that loss of stock-in-trade is allowable as a trading loss as they are losses of non-capital nature. Accordingly, in this particular case it need be considered whether the loss of the machinery by looting is of noncapital nature. The Income-tax Authorities have found as a fact that the loss arising from looting would be on capital account.

12. Regard being had to the matters discussed above, the answer to the question really hinges upon a question of law whether there was destruction within the meaning of Section 10(2)(vii) of the Act The Tribunal has made a finding in the following terms:

'The machinery and plant were looted. There was no evidence laid that the machinery or any part of it was destroyed. Destruction means pulling down resulting in making useless. The word 'loot' is entirely different from 'destruction' and, therefore, as under the provisions of the section the machinery and plant have not been destroyed, no allowance under Section 10(2)(vii) can be given.'

It will appear from the paper-book at page 31 that on the 21st August, 1947, an employee of the firm of Karamchand Thappar and Brothers reported to the Head Office that from the workshop all electric motors from 15 H.P. to 5 H.P. and all machines had been removed. According to Webster's New Twentieth Century dictionary the verb 'to destroy' means amongst others to take away the utility, 'to put an end to the existence' and, therefore, the case as made out by the assessee as to removal does not prima facie expressly connote that the machinery in dispute was destroyed. As observed before the answer to the question as it stands should be given with special reference to the word 'looted' as used therein. If this word means 'destroyed' as used in Section 10(2)(vii), it seems that the assessee may be entitled to an answer to the question in his favour. According to Webster's New Twentieth Century dictionary the verb 'to loot' means 'to plunder', 'to ransack' and 'to carry off booty'. Looting, therefore, means 'to plunder' which on the other hand means 'to pillage', 'to rob', 'to strip', 'to take goods or property forcibly'. It also means taking away things by force, theft or fraud. Having regard to the dictionary meaning of the word 'loot' It appears that it does not constitute the element of putting an end to the existence of the machinery as conveyed by the word 'destroyed' used in Section 10(2)(vii) of the Act. We have already stated that the assessee's case was that the machinery was removed and such removal clearly goes to show that it was a felonious removal of the machinery by the rioters and it contains the elements of theft, robberyor dacoity. This being the position it cannot be said that the machinery was destroyed and as such rendered useless. Accordingly we are of opinion that the Tribunal was justified in coming to the conclusion that there was a clear distinction between 'destruction' and 'loot' and so it could not be said that the machinery and the plant were 'destroyed' within the meaning of Section 10(2)(vii) of the Act. The case, therefore, does not come within the express provisions of this section and in the absence of any other provision of the Act admitting allowance on such a loss, the decision of the Tribunal disallowing the allowance claimed, is correct.

13. In the result, the question referred to us must be answered in the negative.

14. Each party is directed to bear and pay his own costs of the reference.

15. I agree.


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